The Rise and Fall of Theranos a Cautionary Tale for Technology Investors...
Elizabeth Holmes finally shuts down blood-testing firm Theranos on 4th September, 2018

On March 2004, Elizabeth Holmes dropped out of Stanford University – motivated to transform the technology behind blood testing. Driven by her inherent fear of needles, she founded Theranos, a portmanteau of the words “therapy” and “diagnosis” – which developed a wearable patch capable of conducting more than 240 tests while only using a miniscule amount of the user’s blood sample. The company grew at a rapid rate in the following ten years, backed by investors who fell in love with Holmes’ idea. By 2014, Theranos was valued at $10 billion and she, herself, became a billionaire in the process. However, an expose on the company’s proprietary technology in 2015 saw her lose everything and almost go bankrupt. Caught up in a web of conspiracy and fraud, she finally decided to formally dissolve the company on 4th September 2018 – after assuring to pay back unsecured creditors their investment money.

So how did a Silicon Valley-based private company, once deemed to revolutionize health technology, falter and collapse into nothingness in the short span of a few years?

When 19-year-old Elizabeth Holmes developed the idea of using microchip-enabled technology to conduct blood tests, she realized that she needed to build a company that would make the testing cheaper, more convenient, and accessible to consumers. Thus, Theranos came into existence. The company focused on developing a wearable patch that required only .1 to 1% of the amount of blood that would ordinarily be needed to conduct tests, at a much cheaper cost as well. The patch would consist of a blood collection vessel dubbed as the “nanotainer”, and an analysis machine called the “Edison”. By 2014, she had raised $700 million from venture capitalists and private investors – including current US secretary of education Betsy DeVos, the family of Walmart founder Sam Walton, Rupert Murdoch, and Mexican billionaire Carlos Slim. The media and investors hyped the technology as a breakthrough in the large blood-testing market. The company reached its peak in 2014 and was evaluated at around $10 billion. In 2015, Forbes declared Holmes to be the world’s youngest self-made female billionaire – with a personal net worth of $4.5 billion.

The downfall of Theranos started soon after that. In October 2015, the Wall Street Journal (WSJ) released an expose on the company that questioned the validity of their technology. WSJ claimed that Theranos had been using traditional blood testing machines to report test results to different investors, and that its “Edison” device provided erroneous results. This was followed by a Food and Drug Administration (FDA) report that claimed that the “nanotainer” was “not validated under actual or simulated use conditions”. Since then, the company faced numerous legal and commercial challenges from medical authorities, business partners, investors, and state attorneys general.  In July 2016, the Centers for Medicare and Medicaid Services (CMS) revoked Theranos’ CLIA license and prohibited Holmes from owning and operating a laboratory for two years. Soon, her net worth had dropped to virtually nothing and the company was on the verge of bankruptcy. However, in a slight glimmer of hope, Theranos then received $100 million investment from Fortress Investment Group.

The final nail in the coffin arrived on March 2018, when the Securities and Exchange Commission (SEC) charged Holmes on account of a massive fraud. The SEC claimed that she and Ramesh Balwani, her romantic partner and former president of Theranos, had engaged in “an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.” This led Holmes to step down as CEO of the company and return all remain shares of Theranos. Finally, on 4th September, 2018, she sent out a shareholder email that mentioned a cash payback to all unsecured creditors and the formal termination of the company.

According to a report by the WSJ, American business and government leaders had lost more than $600 million by privately investing in Theranos. It perpetrated Silicon Valley’s biggest fraud, and remains a cautionary tale for investors looking to pour their money on the “next great idea”.